Vermont Agency of Natural Resources v. United States ex rel. Stevens: The Supreme Court Limits False Claims Actions Against States

Vermont Agency of Natural Resources v. United States ex rel. Stevens: The Supreme Court Limits False Claims Actions Against States

Order Code RS20641
July 26, 2000
CRS Report for Congress
Received through the CRS Web
Vermont Agency of Natural Resources v. United
States ex rel. Stevens: The Supreme Court Limits
False Claims Actions Against States
(name redacted)
Legislative Attorney
American Law Division
Summary
In Vermont Agency of Natural Resources v. United States ex rel Stevens, the
Supreme Court considered whether states are “persons” under the False Claims Act
(FCA). The Court also addressed the much broader question of whether qui tam relators
meet Article III standing requirements. Analyzing the text of the Act as well as the long
history of qui tam actions, the Court ruled that while relators do have Article III
standing, the False Claims Act does not subject states to liability.
The False Claims Act (“FCA” or “Act”) imposes liability on any “person” who
knowingly makes a false claim for payment to the United States.1 To encourage
enforcement, the Act provides that a private person, known as a “relator” may bring a civil
action for substantive violations of its strictures, “for the person and for the United States
Government,” with the action being brought “in the name of the Government.”2 Such suits
are called qui tam actions, and the relator receives a share of any amount recovered in the
action.3 In Vermont Agency of Natural Resources v. United States ex rel. Stevens, the
respondent originally filed a qui tam suit asserting that the Agency had submitted false
claims to the Environmental Protection Agency, thereby inducing the EPA to provide it
with unearned grant money.4 The Court of Appeals for the Second Circuit rejected
Vermont’s argument that a State is not a “person” subject to liability under the FCA and
that any such action would also violate the Eleventh Amendment.
1 For a more detailed overview of the structure and history of the False Claims Act, see (nam
e redacted),
“Constitutional Aspects of Qui Tam Actions: Background and Analysis of Issues in
Vermont Agency of Natural Resources v. United States ex rel. Stevens,” Congressional Research
Service Report No. RL30463.
2 31 U.S.C. §3729(a)(1)-(7); §3730(b)(1).
3 31 U.S.C. §3730(d)(1)-(2).
4 Vermont Agency of Natural Resources v. United States ex rel. Stevens, 120 S.Ct. 1858, 1859
(2000).
Congressional Research Service ˜ The Library of Congress

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Because of a split among the circuits, the Supreme Court granted certiorari in
Stevens, initially limited to the issues decided by the Second Circuit. However, shortly
before oral argument, the Court issued an order indicating that it would also consider
whether qui tam suits violate the standing requirements of Article III.
In its opinion, the Court first addressed the jurisdictional question of whether Stevens
had Article III standing to bring suit.5 The Court identified three requirements which must
be met to establish standing. First, a claimant must demonstrate an “injury in fact,”
meaning that there must be a concrete harm to his or her interests that is “actual or
imminent.” Second, the claimant must establish causation, in the form of a “connection
between the alleged injury in fact and the alleged conduct of the defendant.” Third, the
claimant must make a showing of redressability by demonstrating that there is a
“substantial likelihood that the relief sought will remedy the alleged injury. According to
the court, these three requirements “constitute the ‘irreducible constitutional minimum’ of
standing...an ‘essential and unchanging part’ of Article III’s case or controversy
requirement.”6
Applying this standard to the case at hand, the Court noted that the complaint
undoubtedly asserted an injury in fact to the United States. However, according to the
Court, the question remained as to whether Stevens could pursue such a claim on behalf
of the government, since “Article III judicial power exists only to redress or otherwise to
protect against injury to the complaining party.” Addressing this issue, the Court first
opined that the relator could be viewed simply as a statutorily designated agent of the
United States, further characterizing the relator’s bounty as a fee received from the
government’s recovery for the successful pursuit of an action. The Court rejected this
characterization, however, determining that the FCA gives the relator an interest in the
action itself, “and not merely the right to retain a fee out of the recovery.”7
The Court explained that while the relator’s interest in the recovery created a
concrete private interest in the outcome of the suit, the interest was identical in nature to
that of an individual who had simply placed a wager on the outcome.8 As this interest was
unrelated to any injury in fact, the Court deemed it insufficient to confer standing on a
relator. Elaborating on this point, the Court stressed that an interest sufficient to confer
standing “must consist of obtaining compensation for, or preventing, the violation of a
legally protected right.” Since the pecuniary interest a qui tam relator seeks to vindicate
does not mature until the successful resolution of litigation, the Court held that a relator
cannot be said to have suffered an injury to a legally protected right.9
5 Justice Scalia wrote the opinion, and was joined by Chief Justice Rehnquist and Justices
O’Connor, Kennedy, Thomas and Breyer. Id. at 1860.
6 Id. at 1861-62.
7 Id. at 1862 (quoting Warth v. Seldin, 422 U.S. 490, 499 (1975).
8 Id. at 1862.
9 Id. at 1862-63.

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After declaring that the aforementioned rationales did not support Article III
standing, the Court nonetheless determined that a qui tam relator’s suit could be justified
by “the doctrine that the assignee of a claim has standing to assert the injury in fact
suffered by the assignor.” Specifically, the Court explained that the FCA could be
interpreted as “effecting a partial assignment of the Government’s damages claim. While
it had never before recognized such “‘representational standing’” by assignees, the Court
stressed that it had routinely entertained such suits, as well as suits by subrogees, or
“‘equitable assignees.’” Given this, the Court determined that “the United States’ injury
in fact suffices to confer standing” on qui tam relators.10 Buttressing this conclusion,
according to the Court, was “the long tradition of qui tam actions in England and the
American Colonies.” The Court found this “long tradition” particularly significant to a
constitutional inquiry into standing, since “Article III’s restriction of the judicial power to
‘Cases’ and ‘Controversies’ is properly understood to mean ‘cases and controversies of
the sort traditionally amenable to, and resolved by, the judicial process.’”11 This historical
basis, coupled with the “theoretical justification for relator standing” based on the doctrine
of assignment, led the Court to declare that there is “no room for doubt that a qui tam
relator under the FCA has Article III standing.”12
Having disposed of this threshold issue, the Court turned to the merits of the case.
Specifically, the State of Vermont argued that it was not a “person” subject to qui tam
liability under the FCA. Furthermore, Vermont asserted that even if it could be
characterized as a person under the Act, the Eleventh Amendment would nonetheless
preclude such a suit. Analyzing the first argument, the Court noted that the text of 31
U.S.C. §3729(a), imposing liability on any “person” who “knowingly presents, or causes
to be presented, to an officer or employee of the United States Government...a false or
fraudulent claim for payment or approval,” had to be interpreted in light of the
“longstanding presumption that ‘person’ does not include the sovereign.”13 Specifically,
the Court noted that this presumption is especially persuasive in instances “‘where it is
claimed that Congress has subjected the States to liability to which they had not been
subject before.’”14 Furthermore, the Court stressed that while such a presumption is not
immutable, it nonetheless may be disregarded only upon a clear showing of contrary
statutory intent.
Applying this maxim to the case at hand, the Court first looked to the “historical
context” of the FCA. Noting that the FCA was originally enacted in 1863 to alleviate fraud
by contractors during the Civil War, the Court determined that the original liability
provision of the Act “bore no indication that States were subject to its penalties.”15
Moreover, the Court found that the original provision did not even make clear that private
10 Id. at 1863.
11 Id. at 1863.
12 Id. at 1865.
13 Id. at 1865-66 (citing United States v. Cooper Corp., 312 U.S. 600, 604 (1941); United States
v. Mine Workers, 330 U.S. 258, 275 (1947)).
14 Id. at 1866-67 (quoting Will v. Michigan Dept. of State Police, 491 U.S. 58, 64 (1989); Wilson
v. Omaha Tribe, 442 U.S. 653, 667 (1979)).
15 Id. at 1867.

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corporations fell within its ambit, as its express terms referred only to classes of real
persons, and provided for criminal penalties including imprisonment. While the Court
acknowledged that this structure did not undermine the assumption that corporations were
indeed covered by the Act, it did “nothing to overcome the presumption that States are not
covered.”16
The Court next considered the subsequent amendments to the FCA, determining that
none of the changes made to the Act indicated a “broadening of the term ‘person’ to
include States.”17 The Court went on to explain that the current version of the FCA further
supported “the conclusion that States are not subject to qui tam liability.”18 Specifically,
the Court noted that 31 U.S.C. §3733 of the Act, which allows the Attorney General to
issue civil investigative demands to any person possessing information relevant to a false
claims law investigation, expressly defines “person” to include states for the purposes of
that section. The Court determined that the inclusion of this provision in §3733, coupled
with the absence of such in §3729, suggested again that States are not “persons” for
purposes of qui tam liability.19 The Court also found it significant that the current version
of the FCA imposes damages that are punitive in practical effect, “which would be
inconsistent with state qui tam liability in light of the presumption against imposition of
punitive damages on governmental entities.”20 Finally, the Court noted that the Program
Fraud Civil Remedies Act of 1986 (PFCRA), a related scheme establishing administrative
remedies for false claims, “contains (unlike the FCA) a definition of ‘persons’ subject to
liability, and that definition does not include States.”21 Given this, the Court held that states
could not be considered persons under §3729, as it would “be most peculiar” to subject
them to treble damages and civil penalties under the FCA while exempting them from “the
relatively smaller damages provided under the PFCRA.”22
In light of these factors, the Court declared “that various features of the FCA, both
as originally enacted and as amended” established the states are not “persons” for purposes
of qui tam liability. Concluding its disposition of the issue, the Court noted that its holding
was buttressed by two other considerations. First, the Court reiterated “‘the ordinary rule
of statutory construction’” that Congress must make its intention to alter the federal/state
balance “‘unmistakably clear in the language of the statute.’”23 Second, the Court also
pointed to “the doctrine that statutes should be construed so as to avoid difficult
constitutional questions.”24 Finally, the Court stressed that while its holding did not
16 Id. at 1867-68 (emphasis in original).
17 Id. at 1868.
18 Id. at 1868.
19 Id. at 1868-69.
20 Id. at 1869.
21 Id. at 1870 (citing 31 U.S.C. §3801(a)(6), which defines “person” as “any individual,
partnership, corporation, association, or private organization”).
22 Id. at 1870.
23 Id. at 1870 (quoting Will, 491 U.S. at 65).
24 Id. at 1870.

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express any view on the issue of whether a qui tam action by a relator against a state
would violate the Eleventh Amendment, “there is a ‘serious doubt’ on that score.”25
Justice Ginsburg penned a concurring opinion that was joined by Justice Breyer (who
also joined the opinion of the Court). Justice Ginsburg explained that while she joined the
Court’s holding, she interpreted the opinion as leaving open the question of whether states
should be considered “persons” when sued by the United States itself under the FCA.26
The dissent, written by Justice Stevens and joined by Justice Souter, maintained that
the statutory text of the FCA did indeed support a finding that states are “persons” under
the FCA.27 Specifically, the dissent argued that the 1986 amendments declaring that a
“person” who violated §3729, thereby triggering the civil investigative demand provision,
“includes ‘any State or political subdivision of a State” clearly established that Congress
intended for states to be liable for FCA violations.28 The dissent went on to argue that such
a conclusion was “supported by the legislative history of the 1986 amendments,” and was
fully consistent with the Court’s construction of federal statutes “in cases decided before
those amendments were enacted.”29 Elaborating on this point, the dissent stated that cases
decided before 1986 “uniformly support the proposition that the broad language used in
the False Claims Act” subjects states to liability. In particular, the dissent argued that while
“general statutory references to ‘persons’ are not normally construed to apply to the
enacting sovereign...when Congress uses that word in federal statutes enforceable by the
Federal Government or by a federal agency, it applies to States and state agencies as well
as to private individuals and corporations.”30
The dissent further argued that the False Claims Act is “all embracing in scope,
national in its purpose, and as capable of being violated by state as by individual action.”31
Coupled with this broad purpose, according to the dissent, was the legislative history of
the 1986 amendments which included a Senate Report declaring that the term “person”
includes “‘partnerships, associations, and corporations...as well as States and political
subdivisions thereof.”32 Relying upon this characterization of the applicable law and
25 Id. at 1870 (quoting Ashwander v. TVA, 297 U.S. 288, 348 (1936) (Brandeis, J., concurring)).
26 Id. at 1871.
27 Id. at 1871 (Stevens, J., dissenting).
28 Id. at 1872.
29 Id. at 1872.
30 Id. at 1872 (citing United States v. Mine Workers, 330 U.S. 258, 275 (1947)). The majority
rejected this argument, stating that none of the cases relied upon by the dissent addressed “a
statutory provision authorizing private suit against a State.” Further, the majority stressed that
“both comity and respect for our federal system demand that something more than the mere use of
the word ‘person’ demonstrate the federal intent to authorize unconsented private suit against
them.” Id. at 13-14, n.9.
31 Id. at 1873.
32 Id. at 1874 (quoting S. Rep. No. 99-345, pp.8-9). It is again important to note that the majority
refuted this aspect of the dissent’s argument, finding that the legislative history and case law
supported only a determination that “the FCA was intended to cover all types of fraud, not for the
(continued...)

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principles, the dissent asserted that the majority’s decision was an outgrowth of a series
of recent cases “that cloak the States with an increasingly protective mantle of ‘sovereign
immunity’ from liability for violating federal laws.”33
While the decision in Stevens clarifies the proper application of the False Claims Act
in relation to states and state entities, the Court expressed no views on other critical
constitutional issues currently being considered in the lower courts. In Riley v. St. Luke’s
Episcopal Hospital, for instance, a Fifth Circuit panel held that qui tam suits violate the
separation of powers and unconstitutionally intrude on the Executive Branch’s duty under
Article II to “take care that the laws are faithfully executed.”34 Having reached this
conclusion, the court did not reach the argument that such actions also violate the
appointments clause.35 The court’s opinion was vacated pending rehearing en banc. The
determination of these issues could ultimately bring the constitutionality of the False
Claims Act before the Court again. Furthermore, it is conceivable that Congress will
respond to Stevens by amending the FCA to bring states within its ambit. Given Justice
Scalia’s statement that there would be a “serious doubt” as to the Eleventh Amendment
validity of a False Claims suit against a state, such congressional action would undoubtedly
lead to further review by the Supreme Court.36
32 (...continued)
additional proposition that the FCA was intended to cover all types of fraudsters, including States.
Id. at 15, n.10 (emphasis in original).
33 Id. at 1872.
34 196 F.3d 514, 530-31 (5th Cir. 1999).
35 Id. at 531.
36 Stevens, 120 S.Ct. At 1870.

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